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Silverado Homes v. Business Loan Center, Inc.

A-5133-01T1 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; ANTICIPATORY BREACH—An anticipatory breach is a definite declaration by a party that it will not fill its contracted promise, not an ambiguous action or series of actions even if they can be interpreted to be inconsistent with a party proceeding to perform under the contract.

A company sold land and took back a first mortgage. Two other mortgages were recorded against the land. The buyer defaulted on the loans. One of the subordinate mortgagees was the successful bidder at the resulting foreclosure sale. It received a sheriff’s deed for the lot. Its title was subjected to the seller’s first lien. The buyer defaulted on the first mortgage as well. Therefore, the seller filed to foreclose the interests of the successful bidder and the other lienholders. The seller and the new owner (the successful bidder) then entered into a letter agreement whereby the new owner was to purchase the seller’s first mortgage position. The amount was to be accepted “if paid in full,” within three months. In addition, both parties agreed that a non-contesting answer could be filed by the three-month mark, but if the new owner failed to do so, it would lose its rights to buy the seller’s position.

The letter agreement was later modified, requiring the seller to obtain a written title commitment or a title insurance endorsement naming the new owner as an insured. This was intended to prove the validity and enforceability of the mortgage before closing. There was no deadline for the delivery of the title commitment. The seller never delivered it. Therefore, there was no closing. The new owner contended that the seller’s obligation to furnish the title work was a precondition to closing. In response, the seller brought suit and moved for summary judgment, claiming that it was the new owner who had breached the agreement. The new owner sought dismissal of the complaint based on the seller’s alleged anticipatory breach.

The lower court believed that the new owner already knew that the seller held the first mortgage on the property because it had already foreclosed on the property and already knew the priority of each lien. Therefore, even though it never received any evidence that the original title insurance policy named the seller as an insured or received any written title commitment, it was clear that the new owner would receive an endorsement to the existing title policy at closing and that it would be covered under the seller’s existing title insurance policy as an assignee. Thus, the court granted the seller’s motion for summary judgment.

On appeal, the new owner contended that the court erred by finding that it had breached the agreement. The Appellate Division agreed, holding that, pursuant to the modified agreement, the new owner was entitled to receive the original mortgage and note from the seller, or to receive some document verifying their validity in order to prove that the seller had not previously assigned the mortgage to anyone else. According to the Court, even though the new owner had sufficient assurances that the seller had the documentation establishing its first lien position, this alone was not enough to support summary judgment in favor of the seller.

The Court rejected the new owner’s contention that the lower court erred when it refused to find an anticipatory breach on the seller’s part repudiating the agreement. An anticipatory breach is a definite declaration by a party that it will not fulfill its contracted promise. The Court did not believe that the seller’s decision to proceed with its foreclosure after the three month period ended signified a conclusive end to the agreement. Furthermore, the Court found that there was a factual dispute as to which party, if any, had breached the agreement. For those reasons, the Appellate Division denied both parties’ motions for summary judgment.

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